Moody’s threat Wednesday to downgrade the U.S. government’s credit rating says a whole lot more about the credit rating agency than it does about the U.S. debt situation. It is really a way of telling the world that Moody’s is making a political statement, rather than an assessment of risk for investors who want actual information about U.S. Treasury securities. This is really an embarrassment for Moody’s – since they are supposed to be evaluating risk — although most of the media didn’t seem to notice.
If you had to pick any sovereign bond in the world that has the least risk of default, it would have to be a U.S. Treasury bond. Anyone who is holding bonds issued by the U.S. government can be pretty sure that they will get their full interest payments and principal, if they hold it to maturity, unless there is something like a gigantic nuclear war. One reason is that the U.S. has its own central bank and can simply create the money to pay bondholders, if necessary … //
… In the real world, the U.S. doesn’t even have a debt problem – net interest payments on the public debt are less than 1 percent of America’s national income, or as low as it has been for more than 60 years. And the long-term deficit projections are a result of our health care system: if you substitute the health care costs of any other high-income country (or any country with a life expectancy as high as ours) into our budget, the long-term deficit turns into a surplus.
But Moody’s wants us to be scared of the federal debt, so as to advance a right-wing agenda. They are making a good case for serious reform of the ratings agencies. (full text).